1 Calix Confidential & Proprietary Fiber Access Networks and The GPON Standard David Cleary VP, Advanced Technology Calix

2 Calix Confidential & Proprietary Meeting Overview Agenda The Need for Fiber Access The Choices of Access Networks The GPON Standard The Market Opportunities for GPON

3 Calix Confidential & Proprietary Meeting Overview Agenda The Need for Fiber Access The Choices of Access Networks The GPON Standard The Market Opportunities for GPON

4 Calix Confidential & Proprietary The Need for Fiber Access It’s all about Bandwidth!!! Video will drive Bandwidth for the foreseeable future Bandwidth usage doubles every 18 to 24 months MPEG4 offers some relief (18 to 24 months?) How Much Bandwidth is enough? Probably more than you think.

5 Calix Confidential & Proprietary The Need for Fiber Access What is special about Fiber Access? Fiber is fundamentally different from copper We are at the limit for bandwidth over copper  Double the bandwidth and halve the reach We are decades away from any limitations on fiber  We are at 2.4 Gbps today  Fiber can support over 100 Terabits per second without reducing the reach Eventually, every operator will deploy fiber... It’s just a matter of time

6 Calix Confidential & Proprietary Meeting Overview Agenda The Need for Fiber Access The Choices of Access Networks The GPON Standard The Market Opportunities for GPON

7 Calix Confidential & Proprietary The Choices for Fiber Access There are 2 choices for Fiber Access: Point to Point Point to Multi-point Point to Point is sometimes called Active Ethernet Point to Multi-point is called PON (passive optical network)

8 Calix Confidential & Proprietary The Choices for Fiber Access PON is analogous to wireless telephony (cellular) Active Ethernet is analogous to wireline telephony Both CapEx and OpEx cost savings favor PON

9 Calix Confidential & Proprietary Meeting Overview Agenda The Need for Fiber Access The Choices of Access Networks The GPON Standard The Market Opportunities for GPON

10 Calix Confidential & Proprietary The Challenge Low Volume Small Customer pool High customer influence Edge/Core Network Equipment

11 Calix Confidential & Proprietary The Challenge High Volume Enormous Customer pool Low customer influence Consumer Equipment Edge/Core Network Equipment Low Volume Small Customer pool High customer influence

12 Calix Confidential & Proprietary The Challenge Consumer Equipment High Volume Small Customer pool High Customers influence is desired Edge/Core Network Equipment Access Network Equipment

13 Calix Confidential & Proprietary Developing the Standard The first step to writing a standard is to choose the Standards Body The 2 primary players for networking standards are: IEEE (Institute of Electrical and Electronics Engineers) ITU (International Telecommunications Union)

14 Calix Confidential & Proprietary The IEEE IEEE well known Protocols Ethernet WiFi WiMAX IEEE Membership is diverse System vendors, chip vendors, optics vendors, industry cunsultants and academia IEEE Voting Each member gets one vote No limit to the number of votes from a given company “Personality” of IEEE standards reflect interests of Vendors Often leads to low-cost solution Often only hits 80% of market Often doesn’t produce migration strategy IEEE standards don’t necessarily reflect Operator Preferences

15 Calix Confidential & Proprietary The ITU ITU well known Protocols SDH V 5.2 ISDN VoIP protocols H.248 and H.323 ITU Membership Membership controlled by ITU Member-Countries Membership open to Operators, Institutions, and Vendors ITU Voting Voting is through consent Each company get one vote Companies can object (but can’t stall process) “Personality” of ITU standards reflect interests of Operators Addresses the operator requirements Addresses the operator constraints Addresses the service provider’s operational models Not focused solely on low cost Duration of Standardization Process relatively short

16 Calix Confidential & Proprietary The ITU and FSAN In the late 1990’s a “Clandestine” group of operators was formed: Objective: “Global Domination of the Fiber Access Market” The group called itself FSAN

17 Calix Confidential & Proprietary The FSAN Committee FSAN stands for Full Service Access Network Loosely affiliated with the ITU Develops all PON standards prior to submission to the ITU FSAN membership consists of both operators and vendors But operators make all final decisions Membership of vendors is tightly controlled by FSAN Operators

18 Calix Confidential & Proprietary NTT KT SingTel Telstra BellSouth Bell Canada AT&T Verizon Qwest Chunghwa Bezeq FT BT DTAG TI Eirecom KPN Telia Malta Telefonica SwissCom FSAN Operators represent a world-wide membership Telus Kuwait MOC Sprint The FSAN Operators

19 Calix Confidential & Proprietary FSAN OAN-WG members Operators AT&T Bell Canada BellSouth British Telecom Deutsche Telekom France Telecom Korea Telecom Kuwait MOC NTT QWEST Sprint Telecom Italia Telstra Telus Verizon Vendors AdtranLucent AlcatelMitsubishi Alphion Motorola BroadLightNEC CalixNortel ConexantNovera Optics ECI Telecom OFN / Oki Entrisphere LG Electronics FlexLightOptical Zonu Freescale Samsung Fujitsu Siemens Hitachi Tellabs HuaweiTerawave Iamba Vitesse Infineon ZTE

20 Calix Confidential & Proprietary Meeting Overview Agenda The Need for Fiber Access The Choices of Access Networks The GPON Standard The Market Opportunities for GPON

21 Calix Confidential & Proprietary The Market Opportunities for GPON There are Numerous Market Opportunities for GPON Lower OpEx Greater Service Offering Future-proof investment The real question is When and Where does it make economic sense to deploy GPON The quickest application appears to be the Developer Market and ‘Smart FTTH’ Communities

22 Calix Confidential & Proprietary Total U.S. Homes Served by FTTH Source: 2007 RVA

23 Calix Confidential & Proprietary Source: 2007 RVA Homes Served by FTTH by Non-Verizon Service Providers

24 Calix Confidential & Proprietary Breakdown of Homes Served: RBOC versus Non-RBOC FTTH Source: 2007 RVA

25 Calix Confidential & Proprietary FTTH Homes Marketed By Architecture Note: 2006 Forecast (2007 Forecast not yet available) Source: 2006 RVA

26 Calix Confidential & Proprietary Competing for Developers New home developments have become the fastest growth Fiber-to-the-Home market Master planned communities Multi-tenant buildings Resort communities New service providers (developer integrators) are competing in this market against incumbents Innovative and fast moving companies Strong IP and project management experience Strong ties to the developer and builder community

27 Calix Confidential & Proprietary Overview of the Developer Market FTTH is now highly desired by Developers FTTH communities are most prevalent in:  West Coast (California, Las Vegas)  Southeast (Florida, etc.) U.S. integrators expanding into  Caribbean  Latin America

28 Calix Confidential & Proprietary U.S. Developer FTTP Market Size 1.5 million new homes per year are built in U.S.  Source: U.S. Department of Commerce 50% are managed by Associations  Source: U.S. Housing Census. Half of these communities will deploy FTTP

29 Calix Confidential & Proprietary Who is the Competition? Over 50 companies are now acting as developer integrators in the United States and the Caribbean Many have formed partnerships with specific developers for all their projects Many companies specialize in security or ISPs Very low overhead organizations In most cases these integrators out source one or more of their services

30 Calix Confidential & Proprietary Why Developers Choose Integrators Developers want recurring revenue streams Incumbents are perceived as unwilling to share revenue with developer Incumbent telcos are seen as inflexible Incumbents are perceived as not delivering newer service offerings

31 Calix Confidential & Proprietary What is Required to Compete? Minimal requirements Fiber-to-the-Premise architecture Diverse video channel selection (IPTV or RF)  News, movies, sports, etc Voice (TDM or VOIP) High speed internet 10 Mb+  Additional offerings Home networking and support Security systems Video on demand Community/member web site Video doorman and camera integration

32 Calix Confidential & Proprietary Closing remarks ICT Infrastructures are best delivered with GPON and FTTH technologies

33 Calix Confidential & Proprietary The Power of Simplicity